Some spending cuts that Italy really needs

More spending cuts are on the horizon in Italy as Mario Monti’s government of technocrats tries to slash its budget deficit in line with demands from Frankfurt, Berlin and Paris.

Unelected Monti passed a €30bn austerity package last December and this has driven Italy deeper into recession. This month the government revised its GDP forecast for 2012 to a contraction of 1.2% from minus 0.4%.

So the former EU Commissioner says he doesn’t want to do anything that will crush domestic demand any further, which has been hit by big hikes in the cost of living, wage freezes, welfare and pension cuts, and tax rises.

Despite this, a fresh round of cuts that may be worth around €5 billion this year is on the cards, with more in 2013.

In the spending review currently being considered, education and health budgets are at risk. So are cuts to the cost of provincial government, which many Italians see as a threat to the very fabric of the democratic life. The government has indicated that it won’t go as far as ‘mergers’ within this layer of local government – a proposal of the European Central Bank – but it still wants to reign back spending in this area.

In the end there may be a hike in the regressive value added tax, despite the disastrous impact this will have on economic growth and living standards.

For Oliveiro Diliberto, national secretary of the Party of Italian Communists, the answer is simple. Slash military spending and end those massive hand-out to corporations.

The first, lining the pockets of foreign fat cats, like big shareholders of Lockheed Martin, US maker of the 90 F-35 fighter jets on order, costs the Italian exchequer €25 billion annually.

The second, amounts to €40 billion a year, according to Marco Cobianchi, whose book Mani Bucati details the vast sums of public money chucked at Italy’s capitalist class whose €200 billion a year tax evasion/avoidance and failure to generate growth and jobs – and therefore tax revenues for the national exchequer – is at the root of Italy’s public finance problems.